Charney let go as CEO of American Apparel; legal battle possible

The controversial CEO of American Apparel, Dov Charney, has been let go by the company’s board of directors because of allegations of “misconduct.”

The sudden departure of the company’s founder, who held many key roles, illustrates the importance of CEO succession planning. Boards, and even the general counsel, need to plan and prepare for CEO exits, InsideCounselhas reported, because such a situation can take place at any time.InsideCounsel’s Erin E. Harrison has reported that, “Succession planning in the C-suite is the single most important decision facing boards of directors today.”

In the case of American Apparel, for instance, the board named John Luttrell, executive vice president and chief financial officer, interim CEO. He will continue in his other responsibilities, as well. Previously, before coming to American Apparel in 2011, Luttrell was executive vice president and chief financial officer of Old Navy, The Wet Seal and Cost Plus.

Also, current board members Allan Mayer and David Danziger were named co-chairs and replace Charney as the board chair.

“We take no joy in this, but the Board felt it was the right thing to do,” Mayer said in a company statement. “Dov Charney created American Apparel, but the Company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

Danziger said the Board has engaged a search firm to find a permanent CEO. “Based on our initial discussions with the search firm, we expect the list of possible successors will be impressive," Danziger added.

The company’s statement was positive in terms of the future of the company – despite some skepticism found in news reports.

“We have one of the best known and most relevant brands in the world, with employees who are second to none; I believe we have a very exciting future,” Luttrell said. “Our core business—designing, manufacturing, and selling American-made branded apparel—is strong and continues to demonstrate great potential for growth, both in the U.S. and abroad. This new chapter in the American Apparel story will be the most exciting one yet.”

American Apparel is based in Los Angeles, California, and has about 10,000 employees and has 249 retail stores in 20 countries.

Charney was suspended immediately, but he will be given 30 days before he can be fired, as per an employment contract.

A legal challenge to the termination is possible. “He was totally taken by surprise, which is part of the problem,” an unnamed source told the Chicago Tribune. “He’s going to fight like hell to get this company back, but he won’t succeed."

In the past, four former women employees filed a sexual harassment suit in 2011; and Charney allegedly choked and rubbed dirt in the face of a former store manager in Malibu, Calif., in 2012. The company denied the allegations.

The Wall Street Journal had also reported Charney was sometimes seen, “wandering around his factory in his underpants.”

In addition, The New York Timesreported Charney was named in two lawsuits in June alleging harassment.

Charney also forced out many employees in the last year such as general counsel Glenn A. Weinman, who left in May, The NY Times said.

“People with knowledge of the situation said an internal investigation had turned up new details about Mr. Charney’s salacious behavior,” The Times added in its recent report.

“The independent directors became aware of some facts we’d been previously unaware of,” Mayer added in a statement to The Times.

It was six weeks ago when the board began really discussing terminating Charney. It was on Wednesday, following an annual meeting, that Charney and five directors met in an office in Times Square, when he was told he was being terminated, The Times reported. The meeting lasted for nine hours.